Flipping capital?

Bad deals: FHA's decision to help swindled Baltimore homeowners makes good sense.

May 25, 2000

ANOTHER dubious distinction for Baltimore: Nefarious home-selling scandals are so rampant in the city that the Federal Housing Administration will test its antidote here.

The FHA has decided to help swindled homeowners in Baltimore first because property flipping has become noticeably prevalent, as revealed in a number of stories by Sun reporter John B. O'Donnell. Appraisers, mortgage brokers and lenders have duped house hunters into paying wildly inflated prices for homes.

For example, an unscrupulous investor buys a property for $45,000. He gets an equally unscrupulous appraiser to falsely put its market value at $80,000 and, within days, sells the house to an unwitting buyer for the higher amount. That buyer is stuck with a big mortgage and a house that will never be worth what he paid for it.

Homeowners who obtained inflated mortgages will get some welcome relief from the FHA's program. The Baltimore initiative will force lenders to reduce inflated loans. If a lender refuses, the agency will pay off the loan, take title to the property and resell it to the occupant at the actual market value. The agency then will pursue legal action against lenders who may have been complicit.

Unfortunately, the victims of flipping who have conventional mortgages must pursue justice on their own.

Flipping scandals have surfaced across the country, but Baltimore has been hit especially hard. More than 2,000 homes have been flipped in the city since 1996. That number alone makes this the right place for the FHA to start helping the victims of these schemes.

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